A blog about economics, finance, business and corporate governance. My background is in economics, with degrees from Columbia and Johns Hopkins. A career in international development, equity capital markets and as a corporate finance chief and board member lead me to think about events in a different way--hence the blog's name.

Saturday, June 22, 2013

Nice Call from McKinsey on China

Another post which continues to draw readers is one based on a McKinsey paper. Among other things, they made a very timely comment on pork, well ahead of the proposed deal for Smithfield Foods. Here's the relevant text from the post,

"China consumes 50% of all pork produced globally, and its internal food production, storage and distribution system is already pushed beyond its limits. Pork and chicken prices have risen 100%. In July 2011, prices rose by 57% year-over-year driven by herd thinning due to high grain prices and by disease. Foreign imports can't fill the gap, especially because of an "extremely rudimentary cold supply chain." If the Chinese government wants to see a shift towards consumption, shortages of consumer electronics will not be the issue, but shortages of food and packaged food products may very well be the Achilles heel."

They also comment about the banking system and the associated capital issues. This issue is being pooh-poohed by the Chinese government, so far. More to follow for sure.

I recently read an ambitious book by Heriberto Araujo, Jose Cardenal and Catherine Mansfield, "China's Silent Army." I was surprised at the wide range of sentiment about the book, much of it dismissive. It was an ambitious project, and partly successful, mostly due to the lack of transparency when the authors looked to interview primary sources. Nevertheless, it had an interesting overall theme.

In the seventies, the Hunt family tried to corner the silver market, which made news worldwide. A pillar of the Chinese government's long term strategy is to assure itself access to supplies of agricultural, ferrous and non-ferrous minerals, energy, basic and specialty chemicals deemed critical for a future of ultra-high growth.

By itself, this is unremarkable. It sounds like long-term planning by the state. The instruments include direct ownership, investment, joint ventures, and long-term contracts. However, reading the book by Araujo et al., it seems to me that the model as it is being implemented is very much like that of the much maligned British East India Company.

I may write more about this later, but for those interested the book is a very interesting and provocative read.